Policy paper

Revenue and Customs Brief 17 (2013): VAT - tribunal decision in Paymex Limited v HMRC

Published 8 July 2013

VAT: Tribunal decision in Paymex Limited v HMRC

In recent discussions the insolvency profession has drawn HM Revenue and Customs (HMRC) attention to an internal VAT Finance guidance relating to voluntary arrangements contained in VATFIN3260 which states that

‘Where the insured person (IP) acts only as the supervisor and has not previously acted as a Nominee then these supplies will be taxable at the standard rate.’

Insolvency practitioners have asked HMRC to clarify this advice in light of the VAT tribunal decision in the case of Paymex Limited and the subsequent HMRC briefs published in response to the Paymex ruling, the content of which were agreed with the insolvency profession.

Revenue and Customs Brief 27/11, issued in July 2011, contained the following paragraph under the heading ‘Tribunal Decision’

“The tribunal decided that the services of an IP, including both the nominee and supervisory stages, constitute a single exempt supply for VAT purposes. The tribunal went on to decide that the two core elements were negotiation of debts and transactions concerning payments. Since it had found both core elements to be exempt, it was not necessary for the tribunal to determine which of the supplies were dominant. However it stated that if it had been necessary for it to do so it would have found negotiation to be the ‘core’ supply.”

For the services of an IP to be covered by the Paymex ruling therefore, those services must constitute a single supply for VAT purposes including both the nominee and supervisory stages. Whilst there is no dispute that the nominee element of the supply is exempt for VAT purposes, HMRC does not accept that the supervisory stage, when provided alone, can always be deemed as exempt. The tribunal chairman did not specifically address this point as part of the Paymex ruling.

However, it should also be pointed out that the supply for VAT purposes in a voluntary arrangement is made by the IP firm, albeit through an individual IP. It is HMRC’s view, therefore, that where an IP firm provides the services of a supervisor in a voluntary arrangement and no-one from that firm has previously acted as nominee in that particular voluntary arrangement then the supplies made by the supervisor remain taxable at the standard rate. HMRC regrets any confusion that may have arisen in the insolvency profession if this point was not made sufficiently clear in our previous correspondence.

Applying these principles to the following common situations, the VAT treatment will be:

• If the nominee and supervisor are in the same firm
  • then their services to the debtor would comprise a single exempt supply
• where a supervisor from a different firm is appointed either at the creditors meeting or subsequently as a successor IP
  • the supervisor’s fees will be standard rated
• where a new firm acquires a portfolio of cases and a new supervisor is appointed
  • the supervisor’s fees will be standard rated
• where a new firm acquires a portfolio of cases but the supervisor moves across with the cases so remains in office
  • the supervisor’s fees will be standard rated
• the only exception would be if an IP can demonstrate that the core part of their service as supervisor is debt negotiation, in which case HMRC would consider exemption. However as this is usually not the prime purpose of the supervisor or the main role that a supervisor undertakes this situation is unlikely to arise in practice

Company voluntary arrangements (CVAs)

Stand-alone CVAs

Applying the principles of the Paymex decision, where an IP from the same firm acts as both nomine and supervisor so that his services constitute a single supply for VAT purposes and the core activity at the nominee stage consists of debt negotiation, then the supply will be exempt.

Where the administrator acts as nominee

If the CVA is part of an exit route from administration then it is unlikely that the administrator’s activities prior to the beginning of the CVA would consist primarily of debt negotiation. The supervisor’s fees would therefore be standard rated.

Conclusion

Generally, the VAT treatment will depend on the circumstances of the individual case measured against the above criteria, but much will always depend on the nature and characteristics of the services provided. IPs who are uncertain about the correct VAT treatment of their fees in voluntary arrangement cases should either speak to the specific caseworker or contact the VAT Helpline on Telephone: 0845 010 900 to obtain advice.

Issued 8 July 2013